Ask The Agents Archives - Page 5 of 8 - The Phoenix Real Estate Guy

Why are there so many short sales in the Phoenix real estate market?

September 26, 2011 By Jay Thompson

This email came in on Friday from a couple in Canada that were searching for homes right on this very site:

Why are there so many short sales?

This was followed 30 minutes later with another email:

This is frustrating. All of the nice places are short sales. What are the odds of buying a short sale as a Canadian?

Let’s tackle the first question first”¦

Why are there so many short sales?

Here’s a chart that shows the median sales price for all homes sold in the Phoenix area from January 2001 through August 2011. Keep in mind the “median price” reflects the price point where half the homes sold are lower than the median, and half are higher. So June 2006 (the tallest bar on the chart) shows the median sales price in the Phoenix area was $265,000. So that month, half the homes sold for less than $265K, and half the homes sold for more than $265K.

Personally, I think median price more accurately reflects current home values than average price because it only takes a few very high value homes (or for that matter very low value homes) to increase (or decrease) the average price. Median price is much less sensitive to outliers.

What this chart shows is that median sales price is the lowest it’s been in over 10 years. So the odds are pretty dang good that if you bought a home n the Phoenix area in the past 10 years, it is worth less ”“ perhaps significantly less ”“ now then it was when you bought it.

Sure, there are exceptions. This chart reflects median value, not the values of every single home sold. And there is no way to know from this data whether a home was paid for in cash, or financed with a mortgage using anything from zero percent down to 10, 20 or more percent down.

But you get the idea. Home values in general have dropped significantly. MANY homes are purchased with little to no money down financing, so there are MANY homes out there where the owner is underwater on their mortgage ”“ they owe more on the home than they can sell it for.

And that folks, is the definition of a short sale ”“ where the lender approves selling the home for less than the loan on it. There are simply a lot of homes out there worth less than what is owed on them. And don’t forget that many people refinanced their homes when values were exploding in 2005 ”“ 2007. Cashing out all that “equity” might have seemed like a good idea at that time, but now those people also owe far more on their home than what they could sell it for today.

What are the odds of buying a short sale as a Canadian?

About the same as they are for a U.S. citizen. Not to sound flippant, but there really isn’t anything all that different between a Canadian citizen buying a home and a U.S. citizen doing the same. The biggest hurdle most Canadians face is finding a lender that has a “foreign national” mortgage product. Not all do, and most will usually require 30% down. But get over that hurdle and the differences between a Canadian and a U.S. buyer are negligible.

The problem with buying a short sale, regardless of your citizenship, is the successful closing is almost entirely dependent on two things almost completely out of your control ”“ the lender (or lenders if there is more than one) and the listing agent.

The lender is really in control. They are, after all, the ones getting shorted on what is owed them. As such, they have the right to approve or deny (or ignore) any short sale offer you make.

And they can take weeks to months to make decisions.

The experience of the listing agent is also a critical component in the success of a short sale transactions. Let’s be blunt, there are agents who have listed properties for short sale that simply do not have the experience needed to poke, prod and essentially harass a lender to make a decision. On the other hand, there are some very experienced short sale agents that have a high success rate in getting short sales closed. The sad part of the equation is the experience of the buyer’s agent has little impact as they can not (normally) deal directly with the seller’s lender.

It is extremely difficult to gather statistics on the successful closing of short sale listed property. You may hear “only 10% of short sales ever close” bantered about but I have yet to see anyone who says that back it up with data. At this moment in time, there are 10,607 active short sale listings in the Phoenix area and there were 2,023 short sales closed last month. So that’s roughly 1 out of 5 listings (or 20%) closing. But even that number is tenuous at best.

Over the last year, short sale listings are down, and closings are up. Anecdotally some banks seem to be getting more cooperative. But there is little doubt that to actually close on a short sale one needs a bit of luck, a great deal of patience, and a cooperative lender. A good short sale listing agent helps tip the odds tremendously.

Ask the Broker: Moving to Phoenix, do we rent first or buy?

November 2, 2010 By Jay Thompson

A great question came into the “Ask the Broker” inbox this morning:

We are moving to Tempe next year (May-June 2011) and have found your site and blogs very useful… and entertaining as well! Thank you!

We wanted to buy immediately, but we weren’t sure if looking into properties for rent is a better option. Is this a feasible strategy in this market? and if so, when should we plan our first visit?

Our plan was to
1. Short-list online properties we were interested in and set-up viewing appointments
2. Visit in the early part (?) of the year and choose
3. Get all the paperwork done so we can close and move-in when we arrive in May/June, we chose Sky Van Lines serving Pahrump, NV to help us move to our new place.

From reading your website, It seems like this would rule out everything but a traditional sale.
Will this work or could too many things go wrong and would you advice us to look for two bedroom apartments in the area before buying a home? Any information you can provide would be helpful.

First, thanks for the kind words. I’m glad you find this a useful and entertaining place!

Here are my thoughts”¦

It probably goes without saying that relocating and purchasing a home are two things WAY up the list of “High Stress Activities”. If you go shopping and buy the wrong size shoes, a bad suit, or food your kids won’t eat, that’s not such a big deal.

Buy a home in the wrong area for you though, that is a big deal.

Ideally, we recommend that if you are relocating and not familiar with the Phoenix metro area that you rent first before you buy a home. There are numerous apartments in the city that are perfect for families. You can find a 2 bedroom apartment rental for you and your family to get settled in. For larger families, there are three bedroom apartments that can provide comfortable accommodations.

The benefits of renting first:

You get familiar with an area before making the home purchase plunge.
If you don’t like where you end up renting, you look for apartments somewhere else. Or at least drive around different areas at different times, watch listen and observe the local area and news ”“ basically get a long term, in-depth feel of different areas.
Less initial cash outlay. Moving is expensive, even if you have corporate relo assistance.
Home prices are still dropping. Sort of.
It is much easier to work out timing issues between leaving your existing home and relocating to your new one. Closings are delayed all the time.
Reduced stress. Maybe.

The disadvantages of renting first:

You have to move multiple times. Let’s face it, moving sucks, luckily, we have On The Go Moving Bellevue that always make this process flawless.
If you have children, unless you rent in the same school district you ultimately purchase in, then the kids may have to switch schools. Again.
Interest rates are at historic lows. They can’t drop much more. They could rise while you are in your rental.
You have to move multiple times.
Short term leases aren’t easy to find. You may be locked into a six month lease. Or more.
You have to move multiple times.

So answering the question posed is difficult. Ideally, you probably want to rent first. But we don’t live in an ideal world.

The questioners plan is pretty solid. They need (I think) to know a few things to really nail down their nest steps.

Plan on it taking at least 45 days to close on a home purchase from the time you get an accepted contract. (Assuming you are financing. You can close in 2 weeks or less with cash).

This begs the question, “how long does it take to get an accepted contract?” In a “traditional sale” (not a bank owned home or short sale) you can often get a seller’s response to your offer in 24 hours. In a multiple bid scenario, add several days. Add several days for counter offers and negotiations. Bottom line though is in a traditional sale, you get answers pretty quickly.

How about bank owned homes? Here it’s a bank, and their bureaucracy you have to plan for. Many REOs (Real Estate Owned, aka bank owned homes) in the Phoenix market get multiple offers. But you can still usually get a yay or nay on your offer within 10 days or so.

Short sales? Good luck. Lenders seem to be getting faster in some situations, but they can still take months (yes months) to grant approval for a short sale.

Be sure to have an “LSR” (Loan Status Report) from your lender before you plan to submit an offer. The LSR is basically a loan pre-qualification that is all but required to be submitted with the original offer.

Determine what you will do about the inspection period. In Arizona, the standard inspection period is 10 days, beginning at midnight after contract acceptance. Being out of town complicates things, but not unduly so. You just need to understand your options (return for the inspection, don’t return and rely on inspectors report, agent feedback, photos and video, etc).

If you’ve narrowed your possible locations to just Tempe, that is beneficial in many ways. But are you sure you want to exclude nearby areas?

The more time you can spend here, the better. It is *great* if you can drive around the areas you’re looking at different times of the day. Drive the route you’ll take to work ”“ at the time you’ll be going to/from work. Get a feel for the neighborhoods. The better feel you get for where you’ll be living, the more comfortable you will be throughout the home buying process. And beyond.

If you can only make one trip however, all is not lost. We’ve helped people relocating that had ONE DAY for a house hunting trip and had NO IDEA where they wanted to live. It makes for a brutal and rather unpleasant day, but it can be done.

Ask the Broker: How fast can you sell my home?

October 20, 2010 By Jay Thompson

This question just came into the Ask the Broker in-box. We get it all the time”¦

How fast can you sell my house? Are we in a buyers or sellers market?

Well, it depends.

Depends on what?

A myriad of things. . .

Where is the home located?
Will this be a short sale, or a “traditional” sale? (Short sale meaning you owe more than the home can be sold for. Traditional meaning you have enough equity release costs to satisfy the loan, and your closing costs).
What is the condition of the home?
How aggressive are you willing to price it?
What are comparable homes selling for?
Are you willing to provide any buyer concessions (paying their closing costs, finding out what the home warranty cost is and buying a warranty, pre-paying HOA dues ”“ there are many things a seller can do to “sweeten” the deal and appeal to more buyers).
And more. . .

There is no single answer to how fast a home can sell, or whether we are in a buyers or sellers market. One good market statistic to examine when you are looking at (roughly) how long it may take to sell your home is absorption rate ”“ which will tell you how long it takes on average to sell a home.

The formula that Building broker in Perth use is pretty simple:

Find the number of homes currently listed for sale and divide that by the number of homes sold last month. The result is the number of months it would take to reduce that inventory to zero.

For example: Let’s say there were 100 homes listed for sale, and 25 homes were sold last month. The absorption rate in this example is 4 months (100 divided by 25 = 4). Assuming no other homes were listed, and sales rate stays flat) it would take 4 months to sell 100 homes.

The astute reader may be saying, “but more homes will be listed and the sales rate probably isn’t flat across all that time.”

True statements. But the calculation does give a basic idea of how many months of inventory is on the market at any given time.

Right now the Phoenix real estate market absorption rate is basically trifurcated (isn’t that a cool word?). There are three distinct absorption rates that can be seen when you look at different price ranges. And you should look at price ranges ”“ don’t just lump the entire Phoenix metro area together. Here’s a nifty chart showing absorption rate by price range for the Phoenix real estate market:

Where’s the aforementioned trifurcation?

Generally speaking, about six months of inventory is considered a “neutral market”, less than six months a seller’s market and greater than six months is a buyer’s market.

Gaze longingly at the chart above and you’ll see that homes listed for less than $50K are selling quickly. Very quickly. That makes it a seller’s market. Homes priced between $50K and $500K are in the six month neutral market range, and homes priced above $500K have anywhere from a one year to six year absorption rate.

Keep in mind these price ranges all have hundreds to thousands of homes in them and just because you may be selling a home in the $175 – $200K price range it doesn’t necessarily mean it will take six months to sell your home. Some homes in that price range sell in days, some may never sell. On average though, you’re looking at around six months. Selling a higher end home? Expect it to take significantly longer.

As always, take real estate market stats with a grain of salt. The mainstream media likes to hype up the bad numbers (and ignore the good) and a metro area the size of Phoenix shouldn’t ever be all lumped in under one number. You’ve got to consider real estate stats in smaller chunks. As seen above, the “months supply of inventory” varies wildly by price range. I can assure you that other metrics also vary wildly across the Phoenix metro area as well.

I Love My Home. I’m Underwater. What Do I Do?

May 24, 2010 By Jay Thompson

A couple of days ago, this question came in from the Ask the Broker page:

Question: I love my home .. bought in 2000 for 289,000 re-fi in 2006 at 376000.00 todays worth 305,000 according to zillow. I’m torn, should I short sell and cut my losses or should I keep fast and steady. I’m trying to figure out my home appreciation in 10 years. I reside in peoria zip 85383

What we have here is basically an unanswerable question. Please allow me to explain why”¦.

I look at this as a two-parter ”“ 1) “should I short sell and cut my losses or should I keep fast and steady”; and 2) I’m trying to figure out my home appreciation in 10 years.

Should I short sell and cut my losses or should I keep fast and steady?

First, you really should not use Zillow.com as a basis for your home’s value. Zillow (among others) uses an algorithm to calculate your home value. Basically it pulls public records for information on your home and others around it that have sold recently. Ostensibly using such “comparables” is correct ”“ it’s what appraisers and real estate professionals use to estimate the market value of your home. The problem with any AVM (Automated Valuation Method) is that a computer can determine who your home really stacks up to said comparables. A computer can’t see your home, or the others around it.

By their own admission, Zillow’s “Zestimate” (their estimate of a homes value) has a median error of 12.7% in Maricopa county. They also state that 65% of the real estate transactions in Maricopa county had a Zestimate within 20% of the actual sales price. Simple math tells us that 35% of Zestimates in the Phoenix area are off by more than 20%.

In other words, the $305K valuation you are seeing in Zillow may not be accurate.

How do you get a better idea of the market value of your home? You can either pay for an appraisal, or have a real estate agent prepare a CMA (Comparative Market Analysis) for you. And of course, not all appraisals or CMAs are created equally either”¦

All that being said, refinancing in Maricopa county in 2006 means it’s probable you are indeed underwater ”“ you owe more on your home than you could sell it for in today’s market. How much you are actually underwater is another question. It may not be as bad as Zillow indicates (to be fair to Zillow, that Zestimate could be spot on. Or you may be deeper underwater than indicated”¦).

So”¦ do you short sell and cut your losses or keep fast and steady?

I can’t answer that question.

Short selling may not even be an option. Unless you can prove a hardship to your lender ”“ prove that you can not continue to make the payments ”“ it is unlikely they will approve a short sale. LOTS of people are underwater. I’ve yet to meet anyone that likes making payments on an home that isn’t worth now what it was then. But your not liking to make the payments means nothing to the lender. To be honest, they could care less whether you like it or not”¦ So if you still have the financial means to make your mortgage payments, short selling is probably not even an option.

If that’s the case, keeping fast and steady, getting a loan modification (good luck with that), “walking away”, or renting the home may be your only viable options. Yes, this stinks to high heaven, but that’s reality.

(Someone is likely to chime in and say, “But some lenders are approving short sales without proving a hardship”. That may, or may not, be true. I’ve personally not experienced such an approval. Heck, in a majority of cases lenders won’t approve a short sale even if you can prove a hardship”¦)

This brings us to the second part of the question,

I’m trying to figure out my home appreciation in 10 years

I wish I could predict home appreciation 10 years out. But there are way too many factors to comprehend, many of which are impossible to predict, for anyone to be able to accurately state future home appreciation rates. A historical analysis of appreciation rates is about the best we can do.

Here’s a chart showing average annual appreciation for Peoria since February 2001 (click image for larger view):

Peoria AZ Long Term Appreciation

As you can see, it’s been a wild ride. Annual appreciation peaked at about 52% in August 2005, and bottomed out at ”“35% in March 2009. The good news is we appear to be back to zeroish. What happens next is really anyone’s guess. If you want my guess, I’ll say that appreciation rates will bounce along at 2 ”“ 3% for the next several years, possibly returning to long term historical appreciation of 4 ”“ 5% after that (along the lines of the first third of the chart above).

And I reserve the right to be completely wrong.

What is going to drive future appreciation? The economy, the credit market, and the composition of the housing inventory. I wouldn’t even hazard a guess as to the future of the economy. I don’t think the credit market will ever return to where it was in 2004 ”“ 2006 ”“ where all that was required to get a mortgage was a pulse. In fact, I hope the credit market never returns to that state. I’m of the opinion that the ridiculous run up (and subsequent destruction) in appreciation rates was due in large part to lax lending standards.

As for the housing inventory, there is still a dearth of “distressed properties” (foreclosures and short sales ”“ aka pre-foreclosures) for sale throughout the Phoenix metro area, including Peoria, as evidenced by this chart:

Market Distress - Peoria 85383

58% of the current listings in zip code 85383 are distressed properties. Until this inventory bleeds off, which could take years, the market can’t do a whole lot with respect to home appreciation.

Depressed yet?

The Bottom Line

The “What should I do?” questions are exceedingly difficult to answer. Especially if one isn’t privy to the questioners financial situation. “Strategic Default” (basically walking away from your home/mortgage) is a very personal decision ”“ one that I could never answer for someone other than myself. A decision to short sell, if that is a viable option, is also a very personal decision. All I can do is arm someone with information (limited as it may be) and leave it to them to decide for themselves what is best given their personal decision.

—
Charts from CromfordReport.com using data from public records and data licensed from the Arizona Multiple Listing Service (ARMLS). Cromford Associates LLC, ARMLS and yours truly, Jay Thompson, expressly disclaim and make no representations or warranties of any kind ”“ express, implied or statutory ”“ as to the accuracy of the data, nor its merchantability or fitness for any particular purpose.

In other less legal-like words, if you use this data to make personal, business or investment decisions and something blows up, it’s not our fault and you can’t sue us.

Do I Need a Real Estate Attorney? Maybe, maybe not.

February 9, 2010 By Jay Thompson

Here’s an email from the “Ask the Broker” page I just received:

I am a first time homebuyer. I am close to settlement/closing and up until now I have done well with understanding all the documents placed in front of me coming from my realtor, mortgage broker and whatnot.

Long story, short….do I need a real estate closing attorney?

I’ve been looking for one and I was recently told by a colleague that Arizona doesn’t require a Real Estate Attorney for the buying & selling of residential properties and that the Title company does all that work for a quarter of the cost.

Is this true?

The documents coming from the title company seem to be much more ‘legal oriented’ (as far as language) and I want to make sure I am not missing anything or agreeing to something I may have issue with. They may seem like boilerplate docs to a lawyer, but I am not a lawyer.

I could really use some guidance on this issue.
Thanks!

Great question!

BIG GIANT DISCLOSURE: I’m a real estate broker, not an attorney. My position on this may will be biased, and nothing I say here (there, or anywhere) should even remotely be construed as legal advice. And, this opinion only holds true for real estate in Arizona. Local and state real estate laws, rules and regulations vary. What you read here may quite possibly be meaningless in other states/jurisdictions.

The short answer:

No, you are not required to use an attorney in a real estate transaction in Arizona.

The lengthy answer:

Arizona is somewhat (if not completely) unique in that the Arizona State Constitution specifically permits real estate agents and brokers to prepare instruments (purchase agreements, contracts for sale, deeds, etc ) incidental to a real estate transaction.

Article 26, Section 1 of Arizona State Constitution:

1. Powers of real estate broker or salesman

Section 1. Any person holding a valid license as a real estate broker or a real estate salesman regularly issued by the Arizona State Real Estate Department when acting in such capacity as broker or salesman for the parties, or agent for one of the parties to a sale, exchange, or trade, or the renting and leasing of property, shall have the right to draft or fill out and complete, without charge, any and all instruments incident thereto including, but not limited to, preliminary purchase agreements and earnest money receipts, deeds, mortgages, leases, assignments, releases, contracts for sale of realty, and bills of sale.

Preparing real estate transaction documents and understanding them and the legal implication of them are two different things. As Michelle Lind, General Counsel to the Arizona Association of Realtors, wrote in a paper on the background of Article 26 points out:

These cases, and subsequent clarifications by the Arizona courts, indicate that Article 26 imposes a duty upon brokers and salespersons to give competent advice to their clients and to understand the legal implications of the documents they prepare. (My emphasis in bold.)

“Imposes a duty”¦” So us agent/broker types should be helping our clients understand all the documents surrounding their real estate transaction. In all honesty, I think the vast majority of agents do a good job of this. In my opinion, explaining the nuances of the documents is one of our most important duties to our clients. But let’s face it, as with any profession, not all practitioners are equal. Just because case law and court clarification imposes a duty does not mean that duty will always be successfully executed.

The bottom line answer:

You are not required to use an attorney in Arizona. An agent / broker can prepare documents, and a title company will help in managing the process. An agent should be able to explain the documents to you in a way you can understand. But these documents are prepared by attorneys and often the language is convoluted and peppered with “attorney speak”. You need to feel comfortable that you understand every aspect of your real estate transaction, and if you are planning to hire an attorney, then by all means, hire one. If expenses are a concern, ask your agent to explain things in a different way, or ask their broker to explain it (or your title / escrow officer). Sometimes just having a different perspective and/or style of explanation might be all the clarification you need.

Photo Credit: smlp.co.uk on Flickr. CC License